Pelle v. Certain Underwriters at Lloyd's of London

Swan, Associate Justice,

concurring in part and dissenting in part.

The majority decides that Joseph v. Inter-Ocean Insurance Agency, Inc., 59 V.I. 820 (V.I. 2013), does not apply to this appeal because the judgment in this case was already final when the Joseph decision was rendered. I concur on this narrow issue of retroactivity and take no issue with the majority’s analysis. However, I opposed the holding in Joseph, that an endorsement in an insurance policy which excludes coverage for drivers under the age of twenty-five contravenes the Virgin Islands Compulsory Automobile Liability Insurance Act, and an insurer lacks subrogation rights against the insured. Id. at 828. Given that this appeal is premised on Joseph, a decision with which I continue to disagree for the reasons elucidated below, I necessarily dissent.

In essence, the underlying facts here are indistinguishable from Joseph. The automobile insurance policy between Pelle and Inter-Ocean contains an executed endorsement, which provides that Pelle was afforded the option to pay an additional premium for coverage of permissive drivers under the age of twenty-five. (J.A. at 108.) The subrogation clause in the endorsement expounded that if Pelle declined to pay the higher premium rate, he would “reimburse and pay [his] insurer for any and all damages, costs or fees[,] whether for bodily injury or property damage . . . deemed caused by any driver or operator who is under the age of twenty-five (25) and who is not listed on the policy as named insured.” (J.A. at 108.)

*323Under the Compulsory Automobile Liability Insurance Act, a vehicle owner’s insurance policy:

shall insure the person named therein and any other person, as an insured, using any such vehicle or vehicles with the express or implied permission of such named insured, against loss from the liability imposed by law for damages arising out of the ownership, maintenance, or use of such vehicle or vehicles in the Virgin Islands, subject to minimum coverage, exclusive of interest and costs.

20 V.I.C. § 703(b).

In January 2005, Pelle permitted his twenty-year-old son to use his vehicle, but he was not a named insured on the policy because Pelle had not paid the corresponding premium. (J.A. at 4.) Pelle’s son was involved in a vehicular collision in St. Croix, which caused injuries to two third parties, as well as property damage. He was charged with negligent driving. In compliance with the Compulsory Automobile Liability Insurance Act, Lloyd’s of London — Inter-Ocean’s underwriter — paid $36,339.60 in damages associated with the accident. Lloyd’s of London then filed an action against Pelle in which it requested reimbursement of this amount. As the majority notes, the Superior Court ruled in Lloyd’s of London’s favor and added attorney’s fees and costs to the judgment, and Pelle commenced payments on the judgment.

Clearly, Inter-Ocean was cognizant of its obligations under 20 V.I.C. § 703(b), as the statute is cited in the endorsement, which is a provision in the insurance policy. (J.A. at 108.) And, unquestionably, to comport with our mandatory insurance scheme, Lloyd’s of London was compelled to pay the damages at issue, at least at the minimum coverage limits. Nevertheless, dissenting from the holding in Joseph, I maintain that insurers in Lloyd’s of London’s position would then possess the right to seek reimbursement from the named insured pursuant to the subrogation clause in the insurance policy. While the statutory insurance laws may require Lloyd’s of London to pay under the terms of the insurance policy, no statutory law prohibits or precludes Lloyd’s of London from pursuing a subrogation claim against the insured for damages caused by a youthful driver, for whom the insured did not pay an additional premium.

When ascertaining parties’ rights and duties under an insurance policy, we examine the compulsory insurance scheme in our statutes, in *324conjunction with the liability policies in the contract, to effectuate the contractual language in a manner which is not contrary to the Virgin Islands Code. See 20 V.I.C. § 704(c)(3) (“The policy, the written application therefor, if any, and any rider or endorsement which does not conflict with the provisions of this Chapter shall constitute the entire contract between the parties.” (emphasis added)); Western Motor Co. v. Koehn, 242 Kan. 402, 748 P.2d 851, 853 (Kan. 1988) (“An insurer’s right of subrogation is derived from the insurance contract.” Consequently, “to determine whether an insurer is barred from claiming a right of subrogation against a particular person, the insurance contract must be examined to determine whether it was the intention of the parties to include the person within the scope of the policy’s coverage.”). I emphasize here, as I did in Joseph, that “[t]here is no explicit prohibition against subrogation in the Compulsory Automobile Insurance Act. Therefore, as long as subrogation is included in the terms of the contract policy, it is allowed under section 704(c)(3).” Joseph, 59 V.I. at 833 (Swan, J., concurring in part and dissenting in part).

The parties’ policy terms are paramount. For instance, in Jefferson Ins. Co. of N.Y. v. Travelers Indem. Co., 92 N.Y.2d 363, 703 N.E.2d 1221, 681 N.Y.S.2d 208 (N.Y. 1998), the New York Court of Appeals examined the insurance policy language to determine whether the insurer could pursue a subrogation action where a permissive user caused an automobile accident. In that case, the policy contained a clause which provided, “[a]nyone else is an insured while using with your permission a covered auto you [the named insured] own, hire or borrow.” Id. at 1227.1 Because the policy “explicitly provid[ed]” coverage for all permissive users, the court found that the insurer lacked subrogation rights. Id. at 1228. Most tellingly, the court concluded that for purposes of the antisubrogation rule, there is no contrast between named insureds and permissive users “except to the extent that the specific policy terms requiref ] a difference in treatment.” Id. at 1228 (emphasis added).

The distinguishing factor in this case, of course, is that the insurance policy terms here expressly differentiate permissive users under the age of twenty-five. Inter-Ocean unambiguously identified this narrow age-based *325class of drivers as high-risk, and did not intend to cover them without the payment of a higher premium. Accordingly, while Inter-Ocean would adhere to Title 20 V.I.C. § 703(b), they simultaneously prescribed the parameters for subrogation in the contract, which Pelle signed.

This construction of the subrogation doctrine is consistent with the underlying public policy of compulsory insurance. Surely, 20 V.I.C. § 703(b) was not enacted as carte blanche for an insured to avoid paying a higher premium, with the assurance of statutory insulation from losses of his or her own doing. The policy interest motivating the adoption of compulsory insurance is the protection of the general public; therefore, when Lloyd’s of London paid the damages which the third parties suffered as a result of the accident in this case, the purpose of the Compulsory Automobile Liability Insurance Act was achieved. See Nat’l Indep. Truckers Ins. Co. v. Gadway, 860 F. Supp. 2d 946, 953 (D. Neb. 2012) (“[C]ourts have reasoned that compulsory insurance schemes were enacted to protect innocent members of the public from uninsured drivers.”); Proformance Ins. Co. v. Jones, 185 NJ. 406, 887 A.2d 146, 155 (NJ. 2005) (given New Jersey compulsory insurance laws, an injured third party “has the right to expect that all other drivers will be insured to the extent required by compulsory insurance”); Mulford v. Neal, 2011 OK 20, 264 P.3d 1173, 1181 (Okla. 2004) (purpose of compulsory insurance is “to protect members of the public from the disastrous financial consequences of using the roadways in our automobile-dependent society” and the scheme has “transformed what was a private insurance arrangement into a quasi-public obligation”); Cotton States Mut. Ins. Co. v. Neese, 254 Ga. 335, 329 S.E.2d 136, 140 (Ga. 1985) (“[T]he advent of compulsory motor vehicle liability insurance in this state established the public policy that innocent persons who are injured should have an adequate recourse for the recovery of their damages.”) (internal quotation marks omitted).

Provided that under 20 V.I.C. § 703(b), insurers remunerate third-party plaintiffs for their loss or damages, there is neither a basis nor justification for this Court to then invalidate the subrogation clause in a fully executed endorsement between the insurance carrier and the named insured. The Supreme Court of Oklahoma’s cautioning on this issue is instructive:

No public policy requires our interference with an insurance contract hammered out by the parties as long as all applicable legislative man*326dates are met. It is the intent of the compulsory liability insurance law that, to the minimum amount of liability coverage required by statute, the innocent plaintiff should be entitled to recover. Our decisions invalidating exclusionary clauses have been narrowly crafted to achieve this purpose. Where an offending exclusion has diluted the omnibus coverage required by statute, we have treated the policy as providing the required coverage/or the benefit of the innocent plaintiff. We have never held, nor do our decisions suggest, that the exclusion is nullified beyond achieving that purpose.

Ball v. Wilshire Ins. Co., 2009 OK 38, 221 P.3d 717, 723 (Okla. 2009) (internal quotation marks omitted).

The antisubrogation rule does not operate in a vacuum, nor is its application categorical. On the contrary, this doctrine requires a showing that the insurer seeks recovery from its insured for the “same risk covered by its policy,” ELRAC, Inc. v. Ward, 96 N.Y.2d 58, 748 N.E.2d 1, 8, 724 N.Y.S.2d 692 (N.Y. 2001), because its underpinning rationale is that an insurer should be precluded from shifting a loss to an insured when that loss arose from a risk which the insured paid to have covered. State Farm Mut. Auto. Ins. Co. v. Perkins, 216 S.W.3d 396, 401 (Tex. App. 2006) (“The insurer that has accepted premiums to cover certain risks should not be allowed to pass the same risks back to its insured in a subrogation action. Otherwise, the insurer would be allowed to avoid the coverage that the insured has purchased.”). However, “where a risk is not covered by an insurance policy, an insurer may subrogate against its own insured.” LaSalle Nat’l Bank v. Massachusetts Bay Ins. Co., 958 F. Supp. 384, 388 (N.D. Iii. 1997); North Star Reinsurance Corp. v. Cont’l Ins. Co., 82 N.Y.2d 281, 624 N.E.2d 647, 654, 604 N.Y.S.2d 510 (N.Y. 1993) (subrogation permitted because exclusions in the insurance policy rendered the policy inapplicable to the loss at issue).

Certainly, therefore, the antisubrogation rule is not operative here (and in analogous cases), where an insurance policy specifically acknowledged a risk, for which Pelle refused to pay a premium to obtain coverage, and that same risk gave rise to an accident which caused in excess of $40,000 in damages, costs and fees. Rather, when Lloyd’s of London recovered its judgment against Pelle pursuant to its subrogation lawsuit against him, it was a valid judgment subject to a writ of execution. The holding in Joseph, however, insinuates that Pelle and similarly situated insureds will *327unfairly receive protection for risks which the insurance company did not agree to assume. The abject unfairness of that result is facially apparent, and I concur with the principle that “[i]n the absence of any ambiguity, courts should not write for the insured a better policy of insurance than the one purchased.” Gibson v. Callaghan, 158 N.J. 662, 730 A.2d 1278, 1282 (N. J. 1999) (internal quotation marks omitted); see also Mulford, 264 P.3d at 1188 (“In other words, when it comes to purchasing insurance, you get what you pay for — nothing more, nothing less.”). To hold otherwise would impede the very purpose of subrogation, which is “to prevent injustice and unjust enrichment.” Dix Mut. Ins. Co. v. LaFramboise, 149 Ill. 2d 314, 597 N.E.2d 622, 624, 173 Ill. Dec. 648 (Ill. 1992); Bank of Am., N.A. v. Prestance Corp., 160 Wn.2d 560, 160 P.3d 17, 21 (Wash. 2007) (same); State Dep’t of Human Servs. ex rel. Palmer v. Unisys Corp., 637 N.W.2d 142, 156 (Iowa 2001) (same).

Crucially, the adverse and unfair far-reaching implications of Joseph are evident, particularly with an insurance policy such as the one involved here, where no premium was paid to cover drivers under twenty-five years of age. Under Joseph, an insured may permit a person under twenty-five years old to drive his vehicle in January, and another youthful operator to drive the same vehicle in May, and still another youthful operator to drive the same vehicle in November, irrespective of driving record or additional risk factors. And should each of these drivers cause a vehicular accident, the insurer is legally obligated to pay the resulting damages and absorb potentially astronomical losses without recourse against the insured. This situation allows the insured to continue paying a standard or general premium, perhaps the same rate as another policy holder who is the sole operator of his or her vehicle. I find it difficult to fathom that this result was the Legislature’s intent in enacting the Compulsory Automobile Liability Insurance Act. Most dire is the prospect that automobile insurers in the Virgin Islands may collectively refuse to bear this burden of paying damages caused by youthful drivers for whom no premium has been paid. Automobile insurers may automatically allocate these prospective costs to the general driving public by increasing insurance premiums entirely or altogether, thereby inadvertently punishing and adversely affecting adult drivers with unblemished or safe driving records. Because I cannot subscribe to the holding in Joseph on which this appeal is anchored, I respectfully dissent.

Similar to the Virgin Islands, the court observed that New York statutes also required each automobile policy to cover the named insured for damage occasioned by permissive users of the vehicle. Jefferson Ins. Co. of N.Y., 703 N.E.2d at 1228.